Income Tax Appellate Tribunal - Kolkata
Aluminium Small Industries vs Income-Tax Officer on 26 December, 2005
Equivalent citations: [2006]103ITD142(CAL), (2006)105TTJ(CAL)991
ORDER
N.L. Dash, Judicial Member
1. The assessee is in appeal being aggrieved with the order of the CIT(Appeals) against his upholding the order of the A.O. regarding the validity of initiation of proceeding Section 147/148. Although the assessee-appellant has taken 6 grounds as per the grounds of appeal filed but the sole question revolves round the only point i.e. regarding the validity of the initiation of the proceedings Section 147/148 initiated by the A.O. as per the order of the CIT(Appeals) in the original appeal passed Section 143(3)/182/158/251.
2. In the original appeal, the CIT(Appeals) although has given part relief to the assessee-appellant, vide para 5 of his order at page 4, directed to delete an amount of Rs. 1,40,000/- as addition Section 68 for the assessment year 1988-89. At the same time, he issued direction giving restricted freedom to the A.O. to reopen the case for the earlier year and if necessary to examine afresh this issue and to make decision in accordance with law.
2.1 The relevant portion of the order of the CIT (Appeals) is quoted here for better appraisal of facts:
5. I have considered the argument of the Ld. Counsel and perused the fact of the case. Since there has been lapse of time and the creditors are very small in nature it is definitely difficult on the part of the appellant now to bring them before the A.O. At the same time, on perusal of the balance sheet, I find that the same was in the earlier year and has figured in this year has coming from the earlier year, thus the norm desires that the same should not be added/disallowed in this year. In view of the above legal provision the A. 0. is directed to delete this addition in the present year. However, the A.O. is free to reopen the case for the earlier year and if necessary to examine afresh of this issue and to take a decision in accordance with law.
3. The Ld. Sr. Counsel for the assessee Mr. M.N. Banerjee while arguing on this point before the Bench, took serious exception to this restricted direction of the CIT (Appeals) in the order for the assessment year 1988-89 and respectfully submitted that the CIT(Appeals) is precluded from passing such direction as per law as the assessee's case comes within the period of pre-amendment period i.e. prior to 1.4.1989. In this connection, he cited a number of case laws which are discussed as follows:
i) Munna Lal and Sons v. CIT187 ITR 378(Alld) - In this case it has been held that the assessment was reopened on the basis of and in pursuance of the report or remarks made by the Inspecting Assistant Commissioner who pointed out the errors in the assessment order. It was not a case of the Inspecting Assistant Commissioner bringing the correct position of law to the notice of the Income-tax Officer, but it was a case where the Inspecting Assistant Commissioner pointed out the errors in the assessment order. Such a proceeding or remarks of the Inspecting Assistant Commissioner could not constitute information within the meaning of Section 147(b). Therefore, the reopening of the assessee was not valid.
ii) CWT v. S.Mukthukumarasamy Udavar 232 ITR 864 (Mad) at pages 868-869 - In this case it has been held as under:
In Munna Lal and Sons v. CIT , the Allahabad High Court held that a proceeding or remarks of the Inspecting Assistant Commissioner could not constitute information within the meaning of Section 147(b) of the Income-tax Act, 1961. Therefore, the reopening of the assessment was not valid.
A similar view was taken by this Court in G.K. Devarajulu Naidu v. CIT .
In Bireswar Sarkar v. GTO , the Calcutta High Court held that notice issued by the Inspecting Assistant Commissioner instructing to reopen the assessment is not valid information, so as to enable the Assessing Officer to reopen the assessment.
In Arvind Kumar v. ITO , the Madhya Pradesh High Court held that a letter from the Inspecting Assistant Commissioner pointing out an omission would constitute information under Section 147(b) of the Act.
Inasmuch as the Tribunal being the highest fact-finding authority, after perusing the memorandum issued by the Inspecting Assistant Commissioner, came to the conclusion that the Inspecting Assistant Commissioner has interpreted the law and directed the assessing authority to reopen the assessment, it is not possible to come to a different conclusion as suggested by learned standing counsel for the Department that the Inspecting Assistant Commissioner merely pointed out the law and not interpreted the law. In view of the foregoing reasons, we consider that the order passed by the Tribunal in the case of both the assessees appears to be in order.
iii) 103 ITR 437(SC) ITO v. Lakhmani Mewal Das- In this case it has been held that the duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income-tax Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment.
iv) 264 ITR 566 CIT v. Foramer France In this case it has been held that (i) Section 147 substituted in the Income-tax Act, 1961, by the Direct Tax Laws (Amendment) Act, 1987, had made a radical departure from the original Section 147, inasmuch as Clauses (a) and (b) had been deleted and under the proviso thereto notice for reassessment would be illegal if issued more than four years after the end of the assessment year, if the original assessment was made under Section 143(3); (ii) Section 153 related to the passing of an order of assessment and not to the issuing of a reassessment notice under Section 147/148, (iii) the direction or finding contemplated by Section 153(3)(ii) had to be a finding in relation to the particular assessee and the particular year and to be a finding it had to be directly involved in the disposal of the case; (iv) on the facts, the notices issued under Section 148 on November 20, 1998, to the assessee for reopening the original assessments for the assessment years 1988-89, 1989-90 and 1990-91, on the basis of the Appellate Tribunal's decision rendered in the case of Boudier Christian relating to the assessee's technicians deputed to India, the income of the assessee was to be treated as fee for technical services and not as business income as assessed in the original assessments for those assessment years, were without jurisdiction as they were barred by limitation in view of the proviso to Section 147, as amended by the Direct Tax Laws (Amendment) Act, 1987, as that was the provision that was applicable on November 20,1998, when the reassessment notices were issued, and admittedly there was no failure on the part of the assessee to disclose fully and truly all material facts for assessment; (v) on the facts, the notices were bad as they were only on the basis of a change of opinion and the law that an assessment could not be reopened on a change of opinion was the same before and after amendment by the Direct Tax Laws (Amendment) Act, 1987, of Section 147, and (vi) as the notices were without jurisdiction, the assessee should not berelegated to the alternative remedy, the Department preferred appeals to the Supreme Court. The Supreme Court saw no reason to differ and dismissed the appeals.
4. Further, the Sr. Ld. Counsel of the assessee submitted that the transaction of Rs. 1,40,000/- belongs to 14 parties in the shape of supply of materials and the amount involved is either Rs. 1 lakh or Rs. 8000/- each as the assessee is engaged in spare parts dealing. The transaction being such an old one, initiation of proceedings even otherwise after a decade is totally invalid. In the meantime, the firm has been closed in 1993 and there is no contract with the said parties.
4.1 According to the Sr. Ld. Counsel, both factually and legally, the assessee's case stands on sound footing. Therefore, the order passed by the CIT (Appeals) confirming the validity of the initiation of proceeding Section 147/148 is totally invalid.
5. The Ld. D.R. Mr. S.K. Jain while defending the cause of the Revenue, drew the attention of the Bench to the finding of the CIT(Appeals) and accordingly it has been deemed proper to quote the relevant portion of the order of the CIT (Appeals) which is self-explanatory, as under:
The appeal has been filed on 20-7-1999. The hearing of the appeal was fixed for 22/9/2000 but from the order sheet it appears that none attended on that date. However, Sri M.N. Banerjee appeared on 25/9/2000 and was heard. Next the appeal was fixed for hearing on 27/10/2000 but there seems to be non compliance on that date. Further, notices for hearing were issued for 13/12/2002 and 27/11/2003. Sri M.N. Banerjee, AR appeared on 27/11/2003 and was asked by Ld. CIT(A) to submit the copy of accounts showing that the sum in question is opening balance. The hearing was adjourned to 22/12/2003 but no details were filed. After obtaining the remand report from the AO the hearing was fixed for 7/3/2005 but none attended on this date nor were any written submissions filed. The appeal is, in the light of above mentioned facts, decided on merits on the basis of relevant relevant evidence.
AO noted that in pursuance to directions of appellate authority in the case of appellant for AY 1988-89 the proceedings for the AY under consideration were initiated Section 148. To verify the genuineness of the loan creditors summons Under Section 131 of the IT Act were issued to 14 parties. As per report of the Inspector the persons were not available in the address given. The appellant was asked to produce the loan creditors but the appellant neither appeared before the AO nor produced the sundry creditors. AO, therefore, framed the assessment ex parte. Placing reliance on the decision of Hon'ble Kolkata High Court in Shankar Industries v. CIT AO held that the appellant has failed to prove the identity of the creditors, their capacity to advance the loans and also the genuineness of the transactions and proceeded to make the addition of Rs. 1,40,000/-.
Appellant has in the statement of facts and grounds of appeal stated that the AO has wrongly assumed jurisdiction in reopening the assessment Section 148 after lapse of nine years. The approval of Addl. CIT, in this respect was unwarranted. There was no formation of reasonable belief to issue notice Section 148 which is invalid in law and barred by limitation. The remark by the Ld. CIT(Appeals) in the appellant order for assessment year 1988-89 cannot be treated as finding or information for making addition in assessment year 1987-88. Ld. CIT(A) had no power to give such direction. The addition made by the AO of Rs. 1,40,000/- is arbitrary.
Observations of the AO and submissions of the appellant have been considered. Brief background of the case is that the Ld. CIT(A) while passing the order in the case of the appellant for a.y. 1988-89 in Appeal No. 968/A-VIII/W-15(2)/94-95 dt. 28/12/95 in para 5 of the order made the following directions "in view of the above legal provision the AO is directed to delete the addition in the present year. However, the AO is free to reopen the case for the earlier year and if necessary to examine afresh this issue and to take a decision in accordance with law". AO in pursuance to this direction initiated proceeding Section 148 of the IT Act for AY 1987-88 after obtaining approval of the statutory authority as already noted above. The identity and capacity of loan creditors and the genuineness of the transaction could not be proved by the appellant and AO made addition. During the course of hearing of the appeal, remand report of the AO was called by this office letter dt. 29/1/2004 on the challenge raised by the appellant to the proceedings initiated Section 148. AO has submitted his remand report by his letter dt. 14/1/2005 which reads as under:
The contention of the assessee:
The issuance of notice Section 148 after 4 years without the approval of Ld. CIT/CCIT was bad in law and challenged.
The return was filed on 8.3.88 and that was processed on 3.10.88 Section 143(1)(a), not assessed Under Section 143(3)/147.
The Ld. CIT(A) directed to AO to reopen the case for the AYr. 1987-88 vide order No. 968/VII/W-15(2)/94-95 dt. 28.12.1995.
The approval was given by the Ld. Addl. CIT, R-15 vide No. R-15/95-96/Wd-15(2)/1067 dt. 27.03.97 and the notice Section 148 was issued on the very day. It will not be redundant to mention here that the income escaped in the assessment year 1987-88 was Rs. 1,40,000/-.
The notice was duly served on 25.4.96.
The provisions of the Section 149 prescribed the time limit and other conditions for issue of motive Section 148. The synopsis is given for your kind consideration.
Provisions as applicable upto May 31, 2001
Upto 4 years Beyond 4 years Beyond 7
from the but upto seven years but
relevant A. years from the upto 10 years
Yr. end of the from the end
relevant A.Yr. of he relevant
A.Yr.
1. In cases (a) The case (b) If the (c) If the
subject to can be reopened escaped income escaped income
scrutiny by for any amount in Rs. 50,000/- is Rs. 1 lakh
way of escaped by or more, approval or more, approval
assessment ACIT/DCIT. An from CCIT/CIT is from CCIT/CIT
Under Section ITO have to a must. is a must
143(3) or 147 takeapproval
from the Jt.CIT.
2. In other (a) Whatever b) If the escaped (c) If the escaped
amount escaped, income is Rs. income is Rs. 50000
any AO can 25000 or more, AO or more, AO has to
reopen has to take take approval
approval from Jt. from Jt. CIT
CIT
In the particular case, the AYr. relates to 1997-98 and the case was processed Section 143(1)(a) (not assessed Section 143(1)/147). The notice had been issued on 27.3.1996 after taking the proper approval from the Jt. CIT i.e. within 8 years from the end of the relevant assessment year, and notice Section 148 was duly served on 25.4.1996 within 9 years from the end of the assessment year. All proceedings were observed according to supra 2(c) above as prescribed in Section 149 of the I.T. Act.
There was no imperative to take approval from the CCIT/CIT as per provision of the Section 149 of the IT Act. As the case had not been assessed Section 143(3)/147, approval from the Jt. CIT was sufficient. Had the case been assessed Section 143(3)/147, then it was mandatory to take approval from the Ld. CIT/CCIT.
On the above fact, the contention of the assessee is not tenable. Consequently, the action of the AO was fully justified and lawful as per the Act.
The important point to note is that the proceedings Section 148 were initiated within the statutory time limit and after taking approval of the appropriate authority. There is no merit in the challenge of the appellant to the proceedings Section 148. The observations of Ld. CIT(A) in the appellant order for AY 1988-89 in the case of the appellant have not been challenged by the appellant in any higher forum. Section 150(1) of the IT Act permits issue of notice Section 148 in pursuance to finding or direction contained in an order passed in appeal. Explanation 2 to Section 153(3) stipulates that any income excluded from the total income of the assessee for an assessment year the assessment of such income for another assessment year shall for the purpose of Section 150 and Section 153 the deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order. In the light of these facts and legal position AO's action in initiating proceedings Section 148 of the IT Act is valid. As regards the merits of the addition on account of unexplained credits, it is evident that even after several opportunities the appellant failed to prove the genuineness of the credits. The appellant even failed to produce the alleged creditors before the AO. It is well settled that the identity and capacity of the creditors and genuineness of the transaction has to be established by the appellant. The onus to do so has not been discharged by the appellant. The addition is upheld.
6. Further, according to the Ld. D.R., when Sections 147 to 153 relate to procedural law, in all fairness, it should be applicable according to the time of issue of notice. In this connection, he cited a number of case laws, the gist of which are analysed hereunder:
i) 250 ITR 508 (Jharkhand) - Navketan Enterprises v. CIT - In this case it has been held that the petitioner's application challenging the initiation of proceedings under Section 147 by issuance of notice under Section 148 on the ground that the Assessing Officer had wrongly obtained the approval of the Joint Commissioner before issuing notices instead of obtaining the approval of the Board because that was the requirement of law as it stood in the year 1988 relating to the assessment year 1988-89, was liable to be dismissed. Whenever the Assessing Officer decides to initiate proceedings for reassessment, it is only the law as it exists at that time which is applicable for issuing notice under Section 148.
ii) 257 ITR 231 - Varkey Jacob Co. v. CIT (Ker) - In this case it has been held that the petitioner admitted escaped income by filing revised returns on the basis of which assessment was initiated. Since there was no proper assessment under Section 143(3), limitation available for the Department was ten years. Since tax that would have been evaded for these years was more than Rs. 50,000 for each year, notice could be issued within ten years under the new Section 147. Section 147 authorises the Assessing Officer to make an assessment for charging the escaped income if the officer has reason for the same. The assessment was valid.
iii) 67 ITD 213 (Del) - DCIT v. Kelvinator of India - In this case it has been held that where period of limitation had not expired and original assessment was also not completed prior to coming of amendment in force with effect from 1-4-1989, Assessing Officer had legal jurisdiction in initiating proceedings under Section 147 by issue of notice under Section 148 under amended provisions of Section 147.
iv) 63 ITD 404 (Alld.) - Upcom Cables Ltd. v. DCIT- In this case it has been held that as regards the assessee's objection about applicability of the amended provisions of Section 147, the view taken by the Commissioner (Appeals) was that since it was a machinery section, the provisions that existed at the time of issue of notice should be applied. This was a correct view. Thus, it would be the new law which would be applicable to the facts of the case as it came into effect from 1-4-1989 and notice was issued to the assessee on 7-3-1991. The proceeding initiated by the Assessing Officer under Section 147 were, therefore, legally valid.
7. Besides this, the Ld. D.R. in order to combat the argument put forward by the Ld. Sr. Counsel on the point of change of opinion having been cited 264 ITR 566 stated above, forcefully argued that it does not amount to change of opinion as the assessment completed earlier was Section 143(1)(a) and, therefore, in the absence of any scrutiny assessment, summary assessment Section 143(1)(a) cannot give a clear-cut finding to the criteria of Section 68(identity, creditworthiness and genuineness of the creditors). In this connection, he relied on a catena of decisions which are also quoted as under:
i) 246 ITR 173(Del) - Mahanagar Telephone Nigam Ltd. v. Chairman, Central Board of Direct Taxes and Anr.-
In this case it has been held that so long as the ingredients of Section 147 are fulfilled, the Assessing Officer is free to initiate proceedings under Section 147 and failure to take steps under Section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under Section 143(1) had been issued.
ii) 236 ITR 34 (SC) - Raymond Woolen Mills Ltd. v. ITO - In this case it has been held that the case of the Revenue was that the assessee was charging to its profit and loss account, fiscal duties paid during the year a well as labour charges, power, fuel, wages, chemicals, etc. However, while valuing its closing stock, the elements of fiscal duty and the other direct manufacturing costs were not included. This resulted in undervaluation of inventories and understatement of profits. This information was obtained by the Revenue in a subsequent year's assessment proceedings. The commencement of reassessment proceedings was valid.
iii) 247 ITR 818(SC) - Ess Ess Kay Engineering Co. P. Ltd. v. CIT - It has been held that the mere fact that the case of the assessee was accepted as correct in the original assessment for an assessment year, does not preclude the Income-tax Officer from reopening that assessment under Section 147(a) of the Income-tax Act, on the basis of his findings of fact made on the basis of fresh materials obtained in the course of assessment for the next assessment year.
iv) 267 ITR 540 (P & H) - Pal Jain v. ITO and Anr. -In this case it has been held that acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of the original assessment is different from drawing a fresh inference from the same facts and material which were available with the Income-tax Officer at the time of the original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself, on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of the original assessment proceedings cannot be said to be a disclosure "true" and "full" facts in the case and the Income-tax Officer would have the jurisdiction to reopen the concluded assessment in such a case.
8. Further, the Ld. D.R. again drawing the attention of the Bench to page 4 of the order of the CIT(Appeals) submitted that in the instant case, time-limit of 7 to 10 years will be applicable as has been given in column 4 of the chart made by the CIT(Appeals) at page 4 of his order as the escaped income exceeds Rs. 50,000/-. Even otherwise, as has been mentioned at page 2 of the order of the A.O., the A.O. has cited the case law reported in 114 ITR 689 in the case of Shankar Industries v.CIT wherein it has been held by the Hon'ble jurisdictional High Court on the point that it is necessary for the assessee to prove prima facie the transactions which result in a cash credit in his books of account. Taking that into consideration, since the assessee's case was decided ex parte, despite opportunities, the A.O. had to make the addition.
9. On hearing the contested rival submissions from both the sides and going through the case laws cited by them, we are of the considered opinion that the validity of initiation of proceedings Section 147/148 of the Act cannot be challenged by the assessee in this case for the reasons given below:
i) As has been held in the case of Shankar Industries (supra), as per the decision of the Hon'ble jurisdictional High Court, the onus lies on the assessee to prove the case prima facie in case of Section 68 which has not been done in the impugned case. It has been rightly held by the A.O. that when the case was decided ex parte despite several opportunities granted and the assessee could not prove it to be the opening balance in subsequent year, the case becomes weakened for the assessee in the impugned appeal. Even the same view has been held by the CIT(Appeals);
ii) The primary onus has not been discharged by the assessee at all as it appears from the facts and circumstances of the case.
iii) The relevant para 5 of the order of the CIT(Appeals) for the assessment year 1988-89 has been partly challenged by the Ld. Counsel of the assessee on the ground that it is an inference-drawn by the CIT(Appeals) without any basis which he is precluded from doing so according to the Ld. Counsel of the assessee. But according to the considered opinion of the Bench, as per the rule of interpretation, the entire para 5 quoted above has to be read and interpreted wholly. One part which is favourable to the assessee cannot be accepted by the assessee and for the other part which is not favourable to the assessee, the assessee cannot refuse to accept that. With this analogy even otherwise the Bench considers that it is not an inference drawn by the CIT(Appeals) but it is a direction and that, too, not a blanket direction. It is a restricted direction to the A.O. to apply his discretion in accordance with law.
iv) Even the order of the CIT(Appeals) while upholding the order of the A.O. for the assessment year 1987-88 is considered to be a speaking one as per his finding portion as quoted above.
v) Case laws cited by the Ld. Counsel of the assessee, as it appears from a bare reading, has been stretched to defend the cause of the assessee but in the considered opinion of the Bench, some sort of accountability has to be fixed on the assessee. Simply because the assessee company has been closed as stated by the Ld. Counsel, it does not enable the assessee to escape from the accountability.
vi) The decision made by the Ld. CIT(Appeals) is a speaking one as enumerated above.
vii) Even otherwise on a bare reading of Section 150, it is crystal clear that no time-limit can be fixed for issue of notice Section 148 if it has been done as a result of direction by any appellate authority. Section 150 is quoted below:
Provision for cases where assessment is in pursuance of an order on appeal, etc.
150. (1) Notwithstanding anything contained in Section 149, the notice under Section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision [or by a Court in any proceeding under any other law] (2) The provision of Sub-section (1) shall not apply in any case where any such assessment, reassessment or recomputation as is referred to in that Sub-section relates to an assessment year in respect of which an assessment, reassessment or recomputation could not have been made at the time the order which was the subject-matter of the appeal, reference or revision, as the case may be, was made by reason of any provision limiting the time within which any action for assessment, reassessment or recomputation may be taken.
10. On a total consideration of the facts and circumstances of the case along with the case record and the case laws cited with reference to the order of the CIT(Appeals) for the assessment year 1988-89, in our considered opinion, the contention and argument of the Ld. Sr. Counsel on behalf of the assessee-appellant cannot be accepted for the reasons stated above. Hence appeal filed by the assessee deserves to be dismissed.
11. In the result, the assessee's appeal is dismissed.
Pronounced in the open court